Aprila Bank ASA (APRILA) Earnings Call Transcript & Summary

Hello, everyone. I am Kjetil Barli, CEO of Aprila Bank.

And I'm Espen Engelberg, CFO of Aprila Bank.

Welcome to Aprila's first quarter presentation. So I will start by presenting the highlights of the quarter, then Espen will present the financials in more detail. And finally, I will conclude by presenting our top priorities and guiding for 2026. This is a prerecorded webcast, and we're not doing a live Q&A session this time. So if you have any questions during or after the presentation, please send them to [email protected], and we will respond in due course. The questions and our answers will be published on our Q&A website. First, a quick recap on Aprila. Aprila is a digital bank providing credit to small- and medium-sized businesses, a large and significantly underserved market. We have built a highly scalable banking platform that today serves more than 6,000 business customers and is designed to serve a significantly larger customer base. Credit decisions are based on our own proprietary credit models. And now with a data set spanning more than 8 years, these models have become increasingly accurate. To the customer, Aprila represents speed, convenience and accessibility, which is captured in our Norwegian tagline with "Bedriftslån, enkelt og greit". That's the scene. Now, let's look at our performance in the first quarter. We delivered a pretax profit of NOK 18.2 million in Q1, up 30% year-on-year. The results reflect continued improvement in underlying profitability. Adjusted for redomiciliation one-offs, pretax profit came in at NOK 20 million, equivalent to a return on equity of 23.3%. This is a pretax ROE, but nevertheless, with a CET1 ratio close to 30%, delivering a return on equity at this level demonstrates a promising outlook for capital productivity. Turning to lending and total income growth. Lending growth accelerated in the quarter, reaching 10% in the quarter compared to 6% in Q4. Year-on-year, the lending book has increased by 30%. Total income is up 15% year-on-year and 2% in the quarter, reflecting that we're gradually reducing the yield on our lending book and of course, that income growth lags behind lending growth. In connection with the release of our Q3 results, we announced that we have decided to pursue a redomiciliation and that we have shortlisted Liechtenstein and Sweden as potential new domiciles. Liechtenstein is our preferred option. We're still maintaining an active dialogue with the FMA in Liechtenstein and discussions are progressing according to plan. Subject to a positive outcome of these discussions, our plan is to submit a license application during the first half of 2026. Based on our estimates, a redomiciliation would reduce Aprila's CET1 requirement by 30% to 40%, making this a proactive move to safeguard Aprila's long-term competitiveness, both in Norway and in other European markets. With that overview, I will now present the 4 high-level financial slides before handing over to Espen, who will walk you through our capital position and other key details. Starting with gross lending. At the end of the first quarter, gross lending was up 30% year-on-year and 10% in the quarter. The latter corresponds to an annualized lending growth of 41%. The momentum stayed strong throughout Q1 and has continued into Q2. For the first 4 months of the year, our lending book has increased by more than NOK 200 million, equivalent to a monthly average of NOK 50 million. In 2025, the monthly average gross lending growth was NOK 30 million. In other words, we have succeeded in accelerating our lending growth, which is our #1 strategic target. Moving on to yield levels. As we continue to attract and onboard larger, lower-risk customers, the gradual and controlled decline in lending yield continues. In Q1, our lending yield was 23.4%, 290 basis points lower than the same period last year. This is an expected development fully aligned with our strategic focus on scaling up with slightly larger ticket sizes while maintaining solid margins. The liquidity yield landed a few notches lower in the quarter, 3.7% versus 4.5% in Q4. Funding costs declined from 4.8% to 4.6% following the interest rate reductions implemented in Q4. Now let's look at how this translates into total income. Total income reached NOK 65 million in Q1. This represents an income growth of 15% year-on-year and 2% in the quarter. The soft development reflects the decline in liquidity yield and the inherent lag between lending growth and income growth. In terms of composition, our income remains dominated by net interest income, which accounted for 88% of total income in the quarter. Net fee and commission income accounted for 8% and net gains on financial instruments for the remaining 4%. Now let's look at how this translates to profit and return on equity over time. Over the past 12 months, total income adjusted for one-offs amounted to NOK 249 million, representing 14% growth compared to the prior 12-month period ending in Q1 last year. As shown in the middle chart, the combined ratio of costs and losses to total income has declined by 8 percentage points over the same period. This reflects continued cost discipline, but first and foremost, improving credit quality, which has been a key driver of our profitability expansion over the past 3 quarters. As a result, underlying pretax profit has increased from NOK 51 million at the end of Q1 '25 to NOK 77 million at the end of Q1 '26. Correspondingly, underlying return on equity has now surpassed 20%. We expect ROE to continue to improve over time, although not at the same pace as we have seen over the period we're looking at here. The pace of further ROE improvement will largely depend on income growth and the development in the credit quality of our lending book. So to sum up, over the past year, profitability has expanded meaningfully, driven by income growth and particularly improved credit quality. Looking ahead, we expect to continue delivering double-digit income growth and for ROE to keep improving over time, although at a more moderate pace than in recent quarters. With that, I'll hand over to Espen, who will walk you through our capital position and a more detailed review of the financials.

Thank you, Kjetil. Let's start with a look at our capital position. We continue to maintain a very solid position with CET1 ratio of 29.7% at the end of the first quarter. In December, the FSA concluded the SREP 2026 (sic) [ SREP 2025 ] where our Pillar 2 Requirement was reduced from 4.8% to 3.7% and the Pillar 2 Guidance was reduced from 1.5% to 1%. That means that the bank's overall capital requirement is 21.2%, and the FSA expects Aprila to maintain a total capital ratio above 22.2%. We have a solid headroom for further growth provided that we can continue to use retail classification. On May 19, 2026, EBA's guidelines on proportionate retail diversification methods enter into force. This sets out a harmonized balanced framework for assessing whether a retail portfolio is sufficiently diversified to qualify for the reduced retail risk weight under the standardized approach in the CRR. At the time of this recording, May 8, we do not yet know whether the FSA will comply with the EBA guidelines. If they do, the regulatory uncertainty around our retail classification will be resolved. If not, we will continue our current practice based on our own assessment of the CRR criteria and maintain dialogue with the FSA. We will return with an update once the FSA position is known. Without retail classification, our capital ratio would have been 25% at the end of the quarter. Let's go over to look at key figures from the first quarter. Starting with the upper left chart, we ended the quarter with 5,957 unique customers, representing a strong increase from the previous quarter. In the upper-right chart, the cost/income ratio was 58%, 3 percentage points higher than Q1 last year. Excluding the one-offs Kjetil mentioned earlier in the presentation, the cost/income ratio in the quarter would have been 53%, fully in line with the bank's underlying cost efficiency. Turning to credit quality. Loan losses came in at annualized 2.4% of gross lending. With the exception of the Q2 '25 spike, loan losses have trended steadily downward over the past 5 quarters, reflecting strong credit discipline. And finally, profit before and after tax reached NOK 18.2 million, equal to an annualized return on equity of 19.4%. Adjusted for NOK 1.7 million in one-off expenses, underlying pretax profit was NOK 20 million, a new record high on an underlying basis. And Aprila has now been profitable for 12 straight quarters. Overall, in Q1, the underlying profitability is high. Loan losses remain low and the cost base reflects deliberate investments, not weakening efficiency. We are well prepared to keep delivering attractive returns going forward. Looking closer at our main products, the credit line, we ended the quarter with 5,517 accounts. It is a strong quarter with a net increase of 184 accounts. The upper-right chart shows the industry distribution of the portfolio. And as we can see, the portfolio is well diversified. Moving to the lower left chart, the average balance per account at quarter end was NOK 266,000, while the average drawdown reached NOK 318,000 as shown in the lower right chart. We continue to see a controlled increase in these numbers as we are serving larger customers. 84% of customer accounts has drawn on their credit line. Looking closer at down payment loans, we ended the quarter with 440 accounts as we added 62 net new accounts during the period. As in the credit line portfolio, the gross loan by industry is well diversified as we can see in the chart on the right. The average balance per account at the end of the quarter was NOK 256,000, and we continue to see a steady controlled growth in the down payment loan portfolio. Now let's look at loan losses. We booked loan losses of NOK 9.1 million in the quarter, of which NOK 6.9 million in loan loss provision and NOK 2.1 million in net realized losses. Moving to the upper-right chart, overall ratio of overdue claims to total claims decreased from 11.1% to 10.8%. Early-stage delinquencies, 1 to 30 days improved, while late-stage bucket remained broadly stable. The 2 lower chart confirms the picture. Losses as a share of gross income held steady at 11%, almost in line with Q4 '25, and well below the levels seen earlier in the cycle. Overall, credit quality remains stable and the loss model continued to perform as expected. That concludes the presentation of the key figures from the first quarter. Kjetil, over to you for the final part of the presentation.

Thank you, Espen. So I will now present our key priorities and reiterate our guiding for 2026. Our top priorities remain the same. First, we continue to focus on accelerating profitable growth. To support this, we're improving our offering to larger customers, streamlining our sales processes and optimizing loan origination. So far in 2026, we have delivered on this priority, achieving an annualized gross lending growth of 41% in Q1. Our second priority is to strengthen competitive advantage. Here, the focus remains on increasing automation across core customer processes while continuously evolving both our credit models and the customer experience. One example of progress is the deployment of a voice-based pre-collection agent that contacts customers with overdue invoices. After 5 consecutive months of usage, we are seeing encouraging results with contacted customers repaying over the invoices faster than the control group. This is a simple but illustrative example of how we leverage automation and AI to improve scalability and operational efficiency. Our third priority is to further strengthen long-term profitability and capital efficiency. In 2026, a meaningful share of management capacity will be dedicated to securing a new banking license with the objective of strengthening capital efficiency. We are in advanced and active dialogue with the Financial Market Authority in Liechtenstein and subject to a positive outcome of these discussions, we expect to submit a final license application during the first half of 2026. The process is expected to take 12 months from the date of the submission of the final application. Given the potential for lower capital requirements, we have also initiated work on capital structure optimization, and we will provide more details on this topic in due course. With these priorities as the backdrop, now let's turn to our guidance. For 2026, we are targeting a total income run rate of NOK 285 million to NOK 295 million in Q4, and a cost/income of around 52%. The flat development in cost/income during 2026 is primarily caused by one-offs related to the redomiciliation process. Excluding these effects, we continue to expect operating leverage from increased scale and automation. As mentioned in the Q1 webcast, we have decided to discontinue our guidance on the number of customer accounts. We plan to revert with updated targets once we have more visibility on the outcome and timing of the redomiciliation process. So that wraps up our presentation of Aprila Bank's quarterly results. If you have any follow-up questions, please don't hesitate to reach out to us on the provided e-mail address. Thank you for joining us today. We appreciate your time and interest, and look forward to keeping you updated next quarter. Until then, take care, and have a great day.